Chapter 5 Network Design in the Supply Chain Supply Chain Management Chapter 5 Network Design in the Supply Chain 5-1

Network Design Decisions Facility role Facility location Capacity allocation Market and supply allocation Factors Influencing Network Design Decisions Strategic Technological Macroeconomic Political Infrastructure Competitive Logistics and facility costs 5-2

A Framework for Global Site Location Competitive STRATEGY GLOBAL COMPETITION PHASE I Supply Chain Strategy INTERNAL CONSTRAINTS Capital, growth strategy, existing network TARIFFS AND TAX INCENTIVES PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility REGIONAL DEMAND Size, growth, homogeneity, local specifications PHASE II Regional Facility Configuration COMPETITIVE ENVIRONMENT POLITICAL, EXCHANGE RATE AND DEMAND RISK Notes: PHASE III Desirable Sites AVAILABLE INFRASTRUCTURE PRODUCTION METHODS Skill needs, response time FACTOR COSTS Labor, materials, site specific PHASE IV Location Choices LOGISTICS COSTS Transport, inventory, coordination 5-3

Network Optimization Models Allocating demand to production facilities Locating facilities and allocating capacity Key Costs: Fixed facility cost Transportation cost Production cost Inventory cost Coordination cost Notes: Which plants to establish? How to configure the network? 5-4

Gravity Methods for Location Ton Mile-Center Solution x,y: Warehouse Coordinates xn, yn : Coordinates of delivery location n dn : Distance to delivery location n Dn : Annual tonnage to delivery location n Fn: cost of shipping one unit for one mile to location n Notes: Min 5-5

Demand Allocation Model Which market is served by which plant? Which supply sources are used by a plant? xij = Quantity shipped from plant site i to customer j 5-6

Plant Location with Multiple Sourcing yi = 1 if plant is located at site i, 0 otherwise xij = Quantity shipped from plant site i to customer j Notes: 5-7

Plant Location with Single Sourcing yi = 1 if plant is located at site i, 0 otherwise xij = 1 if market j is supplied by factory i, 0 otherwise Notes: 5-8